How to Calculate Break Even
What is Break Even?
The break-even point is the level of sales at which total revenue equals total costs — producing neither a profit nor a loss. It is one of the most fundamental concepts in business planning, telling you the minimum output needed to cover all costs.
Step-by-Step Guide
- 1List all fixed costs (rent, salaries, insurance) — costs that do not change with output
- 2Identify the selling price per unit and variable cost per unit
- 3Calculate contribution margin: Selling price − Variable cost per unit
- 4Divide total fixed costs by the contribution margin to get break-even units
Worked Examples
Input
Fixed costs £5,000 · Price £20 · Variable cost £12
Result
625 units
5000 ÷ (20−12) = 625
Input
Fixed costs $10,000 · Price $50 · Variable cost $30
Result
500 units
$10,000 ÷ $20 = 500